Class actions against financial institutions: impact of High Court decision to order security for costs against a litigation funder

In a recent decision which will be welcomed by defendants to funded group litigation, including financial institutions, the High Court has ordered security for costs against a commercial litigation funder in Rowe v Ingenious Media Holdings PLC [2020] EWHC 235 (Ch).

The decision follows the court’s approach to security applications against litigation funders in the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here) and is the first successful such application against a member of the Association of Litigation Funders.

As in the RBS case, it was a significant factor in granting security that, if the claim failed, the claimants would each be liable for only a proportion of the defendant’s costs, in light of the court’s order providing for several rather than joint liability. It was also significant that the funder had provided no evidence as to its financial position, and therefore the court could not be confident that it would meet any order for costs made against it. Whilst some value was attributed to the after-the-event (ATE) insurance policies the claimants had in place in respect of their potential adverse costs liability, those policies were not a complete answer to the application given the risk that they would not respond in full.

The key impact of this decision from a defendant bank's perspective is twofold. Firstly, it has the potential to reduce the risk for banks of successfully defending group litigation and being unable to recover costs from the losing claimant side. While the RBS decision provided some comfort, this has been bolstered by a second decision going the same way, with further comfort provided by the fact that the funder was a member of the Association of Litigation Funders (suggesting that membership will not provide any form of shield to such applications). Secondly, the decision may affect the merits threshold applied by litigation funders to determine whether to pursue a claim, given the potential for early financial exposure for the funder itself. This may in turn impact the volume of funded claims faced by financial institutions.

For a more detailed analysis of the decision, see our litigation blog post.

In another recent development affecting litigation funders and defendants to funded claims, the Court of Appeal has recently found that there is no fixed limit on a funder’s liability for adverse costs when the claim fails. See our litigation blog post on that decision.

Note: The Court of Appeal has allowed an application for permission to appeal. Both the claimants and defendants are appealing their respective obligations to provide cross-undertakings in relation to damages for costs. A hearing has been floated for 1-2 December 2020.